Budget 2013 observations

Hands off my suitcase full of goodies
Here are a few thoughts on Budget 2013:
The most eye-catching policy to come out of this Budget is the Wage Credit Scheme, under which the government will co-fund 40 per cent of wage increases for Singaporean workers earning up to a gross monthly wage of S$4,000. This is a further departure from the government’s previous insistence that wage increases must follow productivity improvement. Now, despite a reported productivity drop of 2.6% in 2012, it is pushing ahead for firms to pay their local workers better. This shows a gradual recognition (or resignation, depending on how you look at it) by the government that the economic and political climate can no longer wait for productivity growth to come through; that perhaps by putting the cart before the horse against conventional wisdom, the incentives for SMEs to operate smarter will be stronger.
Similarly, direct transfers to the lower income group via Workfare will increase with the income ceiling rising to $1,900, from $1,700 previously. This is the government’s alternative to the minimum wage, and it remains debatable which is the better way forward. Workfare has to go hand-in-hand with foreign worker quotas and levies to fix the over-reliance on foreign labour, so it’s good that there is further tightening announced. Comparing Workfare with minimum wage, though, the crucial difference is who’s paying for this topping up of wages. While this pro-business approach is good for the economy in general, it removes the onus on firms to pay better when the government is always in hand to make up the shortfall. Companies that undercut workers continue to get away with it. For a government that is long fearful of the welfare state, it is nevertheless moving towards greater social support in this extension of Workfare coverage, when a large part of the burden should be on firms themselves to pay better.
Budget 2013 ticks many right boxes: helping the lower and middle income, providing greater assistance to companies to restructure, tightening foreign worker influx, and taxing the ultra-rich on property and cars. With a FY2012 budget surplus of $3.86bn, the government can certainly afford to be generous. This surplus is much higher than the originally estimated $1.27bn, so it’s interesting to see where the better than expected amount of £2.57bn came from. If we look at just operating revenue, the revised total was $55.18bn versus estimated $53.08bn, or a better than expected surplus of $2.1bn. This is broken down in the diagram below.

[Source Data: www.singaporebudget.gov.sg]
A budget surplus is a healthy sign and it is good that the government is spending big to redistribute to Singaporeans. However, this unexpected huge surplus came at the price of high inflation and increasing debt levels due to higher housing and car loans. There are inherent problems in the economy resulting in wealth not being distributed properly during its normal course of functioning that necessitates a bigger role and burden on the government to provide subsequent transfer. This is not meant to be a criticism on the government — because the Budget is a good one — but the emphasis must remain on fixing these root causes of inequality and escalating prices than on retrospective transfers and subsidies.
The new vehicle loan down payment rule from MAS to prevent over-borrowing is an example of not fixing the root problem. While the intentions are good and the reasons sound, it comes across as a drastic over-reaction by the authorities to rein in borrowing, perhaps hoping to provide a check on COE prices as well. It is a blunt rule that ignores the fact that increased borrowing is due more to high COE prices than buyers going for unnecessarily fancy cars.
While I tend to view cars as more want than need, I can’t profess to know the situation of those who feel it’s an absolute necessity, and these are the people penalised. The rule also disadvantages those with stable incomes who may not have a sizeable sum of cash at present, yet it does nothing to prevent the millionaire car enthusiast from adding another to his garage collection. So while the Budget is progressive-based, this separate move by MAS is regressive in nature. Various suggestions have been made over the past two years on how to fix the COE problem, such as balloting or priority schemes, and all these deserve closer study. The last thing we want to do is to solve the problem by shutting out young families, the less-abled, or families with aged members. It will only reinforce the view amongst some that cars can no longer serve to improve the lives of the average person, but are mere toys for the rich.
[…] – The Heart Truths: Dissecting Budget 2013: Part 1 (Key Points) – The Void Decker: Budget 2013 observations – Under The Angsana Tree: Response To Budget […]
I can’t understand how co-funding wage increase helps Singaporean workers. When companies hire, they benchmark against the wage market for the respective position. When considering a income increase, they would increase in line with the market price. If the market dictates an increase of S$1000, company would simply increase S$600 and the government co-fund S$400. Thus the entire subsidy directly benefits the business, not the Singaporean worker. The Singaporean is only more competitive than a foreigner for a wage increase. But if there are low barriers to entry and the foreign country’s wage rate is lower, companies still will take the foreigner in the first place anyway. Can someone help explain?
Both the $600 and $400 go to the worker, no? As for whether this will make foreigners more competitive than Singaporeans, that is why they need to tighten the entry permit requirements.
what i meant is that the company would have increased the wage rate by 1000 irrespective of the subsidy by the governments.
I see what you mean. It depends on how you look at it. If they are going to give the increase anyway, then yes the govt would just be subsidising them.
And just to add to that, many are already saying the system is up for abuse. Eg, a company could hire a worker and deliberately start with a lower salary (say 3k), before increasing it later to the originally intended amount (say 4k) so that they qualify for subsidy. So the company only pays $3.6k when all along the pay was agreed as $4k.
Agreed, hope the govt will be able to close the loopholes to this policy. Nevertheless, I am happy because I believe that pushing this policy shows the government recognise that wages must increase to better reflect the social productivity of low wage workers. And this will help us better support and develop ourselves.
I totally agree with your views on the Wage Credit Scheme. Surely the SMEs especially those restaurants and other type of food outlets have over expanded. The law of supply and demand should take over. There will always be a limit to labour. Pay more to workers and they will flock to your restaurants to work. Restaurants must compete either with pay or other incentives to get the labour they need to run their business. Has anyone even wonder if we have too many restaurants per capita? So if the costs are passed to consumers, sure we will just eat out less, so what? But so does any developed country where going out to dine is not a daily affair.
There are a few established restaurants that still serve good food and good service. They are not cheap but we still patronise them. That should give a clue to the government on NOT pandering to these lobby groups!
Also i am sceptical if the real wages are actually passed to the workers. And if it’s meant for only Singaporeans, surely it will cause tensions as there are more much more foreign workers in the F&B business, especially M’sians. Another strike coming over wage disparity?
If there’s anything we have too many of (besides foreigners), it’s shopping malls and the restaurants in them! Agree on the eating out part, which I wrote about in previous post. Even though eating out is great in Singapore, we will soon have to get used to the new reality of it being expensive and more in line with other developed countries.
Just vote the opposition in coming election else the working class will always be taken advantage by the ruling class.